What’s best for Malaysia Airlines, and can it be saved?


One of the billion dollar questions facing the Malaysian government today is to figure out which party to pick as the partner to revive the national airline.

It is a billion dollar question because going by one analyst’s view on the matter, the incoming white knight for Malaysia Airlines will have to fork out a lot of money to fix the airline.

Khair Mirza, a one time well quoted equity analyst covering the airline industry and now associate director of Modalis Infrastructure Partners, a transport infrastructure consultancy, tells StarBizWeek this: “Based on reported Malaysian Airlines financials, we expect a RM3bil price tag for the 49% stake sale with board and management control. Besides that we expect that around RM500mil per year would be needed to be pumped in for working capital needs. This is on the assumption that they do not take on new planes and there is no asset disposal,’’ Khair adds.

Pricing aside, another crucial aspect in the turnaround of Malaysia Airlines would be the willingness of the government to cease control over the asset to the new party coming in.

Notably, not many national carriers around the world are sold to private parties. One exception would Philippines, which sold a 49% stake in the national airline to San Miguel Corp initially, and later to Lucio Tan’s group. The airline swings between a loss and breaking even today.

Malaysia’s Prime Minister said this week that four parties have made offers for Malaysia Airlines. While some of these parties are keen to buy over the airline, other parties are keen to only come in to manage operations.

Brendan Sobie chief analyst at CAPA Centre for Aviation, a global airlines research and consultancy firm, reckons that a strategic investor seems to be the preferred option for the Malaysian government at this point. “But it is not necessarily the only option as Malaysia Airlines embarks on yet another restructuring.

“The challenge will be to find an investor (strategic or otherwise) with the right qualifications and experience,’’ Sobie says.

What is more interesting is Sobie’s view on how the government should have to come to a decision on control over Malaysia Airlines.

“The government needs to decide if it is willing to fully relinquish control and not interfere once an investor is selected and initiates a new turnaround attempt. It will not be easy for the new investor to succeed at turning around the airline and a successful turnaround becomes virtually impossible if there is again any government interference. The chances of success also depends on whether the selected investor has the necessary capabilities and credentials,’’ Sobie says.

Meanwhile, Khair questions if selling the airline to private owners is the best option.

“Let the new board and management at Khazanah do the job. Why sell the family silver when no other government has sold their flag carrier except for the failed experience of Philippines Airlines.

“Let independent Mavcom do their job and set a level playing field that the Barisan government was not able to prioritise,’’ Khair says, adding that “there should be a clean break from the past.’’

Sobie adds that “there is no point in selling a controlling stake in the airline unless the government has full confidence in the new investors, their level of funding and their turnaround plan. The last thing the government would want is to have to reassume control and/or again bail out the airline in a few years’ time.’’

The Prime Minister Tun Dr Mahathir Mohamed is the chairman of Khazanah Nasional Bhd, the government’s investment agency which owns Malaysia Airlines.

The PM has said they need “someone who is experienced” to come into Malaysia Airlines.

“We have changed the management of the airline many times. Everyone promises they will turn around the airline but in the end, they all fail. This time, we don’t want to give without really studying the capability of the people who may want to takeover the airline,’’ the premier said. Sobie says managing the airline is a hard task regardless of whether it is a local or foreign party managing it. The key factor is that there is “no more government interference and having a person with the right qualifications and support”.

The four parties keen to come into Malaysia Airlines are Tan Sri Syed Azman Syed Ibrahim of Weststar Group, Datuk Pahamin Ab Rajab of Najah Air Sdn Bhd, Feriz Omar of Jentayu Danaraksa Sdn Bhd and Shahril Lamin together with some former employees of MAS.

Industry sources say there are also interested foreign parties however they are not keen to buy up to 49% of Malaysia Airlines, preferring a smaller strategic stake.

When contacted, Syed Azman says “we have written to the government to register our interest more than a week ago,” but declines to elaborate. Syed Azman is no newcomer to the world of aviation, having successfully built an empire in the form of his Weststar Aviation Services Sdn Bhd which is today South-East Asia’s largest offshore helicopter service provider.

Global investment firm, KKR & Co bought a 40% stake in Weststar Aviation five years ago at RM640mil. Since then, the valuation of Weststar is said to have gone up, raising significantly the value of KKR’s stake. The other interested party for Malaysia Airlines is Datuk Pahamin Ab Rajab, of Najah Air Sdn Bhd and his five partners who met PM more than a week ago.

They want permission to conduct a due diligence to prepare a comprehensive proposal to turn the airline around. He was once the chairman of AIRASIA Group but in this deal, he claims there is no connection with AirAsia. Pahamin says he comes equipped with an experienced team and has investors with him, with funding in place.

Feriz Omar, the managing director of Jentayu, when contacted said “yes, we have submitted our proposal but we cannot share any details”. This is not the first time Jentayu wanted to buy into Malaysia Airlines. It was reported that five years ago, Jentayu submitted a RM8.75bil offer for Malaysia Airline, but the offer was not accepted.

“This is a suitor that has persisted in wanting to get involved in Malaysia Airlines for some time now. Their proposal is a comprehensive one, that involves funding and strategic foreign partners who are involved in airline operations and running maintenance, repair and overhaul (MRO) services,” says an industry expert.

Yet another interested group is led by corporate lawyer Shahril Lamin and comprises several former employees of the airline. This group is said to be have years of expertise and experience in aviation and are very familiar with Malaysia Airlines. Sobie points out that there are a number of challenges to overcome in the turning around of an airline. He says multiple prior restructuring attempts have failed and that this highlights how difficult it is to successfully turn Malaysia Airlines.

This needs to be coupled with current challenging market conditions and the lingering legacy issues at the airline.

Tie-ups with other airlines

Experts are saying that partnerships with airlines such as Japan Airlines (JAL) and Singapore Airlines (SIA) would be good for Malaysia Airlines.

“We know that the Qataris are keen and they may be seen as strategic investors with 10-15% stake in the airline. That in itself will be good for Malaysia Airlines,’’ says a source.


   

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